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Uncertainty-driven labor market fluctuations

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  • Pries, Michael J.

Abstract

This paper explores uncertainty shocks as a driving force in a search and matching model of the labor market. Uncertainty takes the form of a noisy component in a firm׳s initial signal about job productivity. Greater uncertainty dampens job creation by increasing the risk of making the costly mistake of investing in jobs that will turn out to be unprofitable. Thus, uncertainty shocks can cause labor market downturns: lower vacancy rates, lower job-finding rates, and higher unemployment. Numerical simulations examine the level of volatility and the cross-correlations and autocorrelations of key U.S. labor market indicators that result from fluctuations driven by changes in uncertainty.

Suggested Citation

  • Pries, Michael J., 2016. "Uncertainty-driven labor market fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 181-199.
    • Handle: RePEc:eee:dyncon:v:73:y:2016:i:c:p:181-199
    DOI: 10.1016/j.jedc.2016.09.003
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    Cited by:

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    2. Choi, Sangyup & Furceri, Davide & Yoo, Seung Yong, 2024. "Heterogeneity in the effects of uncertainty shocks on labor market dynamics and extensive vs. intensive margins of adjustment," Journal of Economic Dynamics and Control, Elsevier, vol. 162(C).
    3. Ambrocio, Gene, 2017. "The real effects of overconfidence and fundamental uncertainty shocks," Research Discussion Papers 37/2017, Bank of Finland.
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    5. Isaac Baley & Ana Figueiredo & Robert Ulbricht, 2022. "Mismatch Cycles," Journal of Political Economy, University of Chicago Press, vol. 130(11), pages 2943-2984.
    6. repec:zbw:bofrdp:037 is not listed on IDEAS
    7. Jianchun Fang & Giray Gozgor & James H. Nolt, 2022. "Globalisation, economic uncertainty and labour market regulations: Implications for the COVID‐19 crisis," The World Economy, Wiley Blackwell, vol. 45(7), pages 2165-2187, July.

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    More about this item

    Keywords

    Uncertainty shocks; Unemployment; Search and matching models;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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